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An Early Look at Mattis’ Cost-Cutting Strategy

Two memos signed this month by Defense Secretary James Mattis offer a glimpse into how he plans to steer the Pentagon toward his intended goal of fiscal responsibility.

Unlike the rest of the federal government that is bracing for steep budget cuts, the Pentagon is poised to receive a funding boost. President Trump’s campaign promise to build up the U.S. military, however, does not amount to a blank check, Mattis has said.

The Pentagon expects to get about $570 billion in fiscal year 2017, and will request an additional $18 billion to $25 billion to cover immediate war expenses. But to fund next-generation weapons and expand the size of the force over the next several years, the Defense Department will need tens of billions more per year.

With the entire government under a fiscal squeeze, Mattis will have to generate funds from within the Defense Department to help pay for the modernization of the military. He is quickly moving to attack overhead, administrative and contracting expenses. And he will lead efforts to dramatically change the Pentagon’s procurement organization.

One of the directives signed Feb. 17 is strictly in response to legislation that disestablishes the office of the undersecretary of defense for acquisition, technology and logistics. Whereas Mattis’ predecessor Ashton Carter sharply criticized the language in the 2017 National Defense Authorization Act, the incoming secretary appears to see this change as an opportunity to make the Pentagon more efficient. He asked Deputy Secretary Bob Work to lay out an implementation plan for restructuring the AT&L job and, per congressional mandate, break it up into two new undersecretary positions, one for research and engineering and one for acquisition and sustainment. He also will recommend whether the Pentagon should have a chief innovation officer. Plans are due to Congress March 1.

The other memo deals with less controversial but potentially more impactful issues: Shrinking the Defense Department’s bloated bureaucracies and lowering overhead costs across the board. “If we are to ask the American taxpayers to provide more resources to our nation’s defense, we must do the same — by making our business operations more efficient and freeing up funds for higher priority programs,” Mattis wrote. Work and teams of senior officials from across the Defense Department and the services will examine every business function and figure out ways to consolidate offices, reorganize operations and slim down overhead functions.

Mattis wants savings to materialize relatively soon, so money can be shifted in the 2019-2023 budget to areas that shore up military capabilities such as advanced training and equipment.

How much money might be saved with these initiatives is unknown. Past secretaries of defense have attempted similar efforts and the results were negligible. The math is pretty daunting considering that Trump’s proposed defense buildup could cost as much as $100 billion per year when all is said and done, analysts estimate.

The president has called for a 15 percent increase in the size of the armed forces, and for a massive naval buildup. That could put the annual defense budget closer to the $700 billion mark, noted Michael O’Hanlon, senior fellow and military analyst at the Brookings Institution. The current budget, including a war supplemental, is about $600 billion.

Trump has bragged about slashing the cost of the F-35 joint strike fighter, but that is hardly going to put a dent in the problem, said O’Hanlon. In fact if the Pentagon ends up cutting production short, the unit price of the airplane will go up.

The bulk of the Pentagon’s budget pays for personnel, health care, maintenance of aging equipment and facilities. “We have a small but expensive military,” said O’Hanlon. Overall, defense spending is just over 3 percent of the nation’s gross domestic product, and 1/6th of government spending. Nevertheless, fiscal pressures will be the norm for the foreseeable future, he said. “We still have a huge deficit so all government programs will have to be watched carefully.”

Former Pentagon Comptroller Robert Hale said the Trump administration should make bold moves to close unneeded military bases and downsize its civilian workforce if it wants to save serious money. “Let’s strike while the iron is hot on business reform,” he said during a panel discussion at Brookings. “We have a business reform president. Let's put forth an aggressive proposal on business reform. That should include BRAC and civil service reform. It should look at the mix of people in the military, civilians and contractors.”

Unless the Pentagon deals with its rising personnel, infrastructure and maintenance costs, any future increases to the topline will be eaten up without allowing for the military to modernize, Hale cautioned. Procurement accounts are the first to be cut when budgets are squeezed. “If defense is going to go up, procurement certainly needs to be a major part so that we can begin to build the base we will need to meet this bow wave of needs and 2020.”

Procurement Reforms

If and when the acquisitions office is reorganized, the expectation is not only to find ways to run procurement programs more efficiently, but also to speed up the injection of new technology. Initiatives like the “third offset” strategy started by Carter to develop next-generation weapon systems should continue, possibly under a different name, said Hale. “The department under Mattis recognizes it needs to look for ways to do R&D and capture what is going on in the private sector.”

Whatever reforms are rolled out this year will have to create savings rather quickly for the Trump administration to deliver on its pledge to increase the size and capability of the military.

For the fiscal year 2019 five-year defense program, Mattis told the department to focus on “increasing the lethality and capability of the joint force for the high-end fight,” said retired Lt. Gen. Mike Moeller, who is a vice president at engine manufacturer Pratt & Whitney.

“Those words are very specific,” said Moeller. “What that means is that the department for the long term is going to look at those capabilities that will defeat a very capable adversary in the 2025-2030 timeframe,” he added. “What the department has to do is look at the capabilities they are building, do a gap analysis, including a comprehensive cyber review, and build a robust experimentation program to identify breakthrough capabilities they need to get to 2025.”

Moeller said procurement reforms will be imperative in order to bring Mattis’ vision to life. “Every administration has taken a very hard look at the institutional defense, both from a cost perspective as well as from what is the capability you are getting. Is it delivered on time, and is it on cost?”

Past defense secretaries have talked about accelerating acquisitions programs that average 10 years down to three, “But you need to reform the acquisition system,” said Moeller. Former procurement chief Frank Kendall got the ball rolling, but far more needs to be done, said Moeller. Kendall’s signature initiative known as “better buying power” was embraced by senior leadership “but it did not make it through all the layers down to the individual acquisition and contracting officers,” he said. “You need to take a hard look and go all the way to the very tip of the spear when it comes to getting new programs.”

The modernization of the military also will require Mattis to improve the Pentagon’s relationship with Congress, said Moeller. “You really have to have support from Congress to get budgets on time” and to give the Pentagon long-term fiscal stability. “You really have to get long-term funding stability if you want to talk about getting fast.”

Contractors also have to do their part by keeping their commitments on program schedules and costs, he said. The system is overdue for a shakeup, insisted Moeller. “If the services, if the department continue on the traditional path of ‘This is how we have always done it, we tried it before and it did not work,’ as we move forward with programs the secretary wants to get done by the 2020s, then the department will not be able to get there.”

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